Industry Summary Articles

“We’ve delivered a strong operational and financial performance in 2023 and I’m extremely proud of the way our people have delivered cutting-edge equipment and services to our customers, working together with partners across our supply chain. Our performance, combined with our global footprint and record order intake, means we’re well-positioned for sustained growth in the coming years. We’ll keep driving the business forward, investing in new technologies, facilities and our people. This will help us deliver on our order backlog and help ensure our government customers stay ahead in an uncertain world, whilst delivering increased value to our shareholders and the communities where we operate.”
Charles Woodburn, Chief Executive

Financial performance measures as defined by the Group ¹

 Financial performance measures as defined by IFRS

1. We monitor the underlying financial performance of the Group using alternative performance measures. These measures are not defined in International Financial Reporting Standards (IFRS) and therefore are considered to be non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly, the relevant IFRS measures are also presented where appropriate. The purposes and definitions of non-GAAP measures are provided in the Alternative performance measures section in the 2023 full year statement. 
2. Growth rates for sales, underlying EBIT and underlying EPS are on a constant currency basis (i.e. current year compared with prior year translated at current year exchange rates). The comparatives have not been restated. All other growth rates and year-on-year movements are on a reported currency basis.
3. Reflects 2023 interim dividend of 11.5p (2022 interim dividend 10.4p) and 2023 proposed final dividend of 18.5p (2022 final dividend 16.6p).

Financial highlights

• The growth in sales and revenue was driven by strong programme performance across all sectors. 
• The increased profitability of the Group reflects strong programme execution and internal efficiency efforts.
• Earnings per share increased reflecting the profitability of the Group and further benefitting from the on-going share buyback programme.
• After generating free cash flow of £2.6bn, including net cash flow from operating activities of £3.8bn, the Group closed 2023 with cash of £4.1bn and net debt (excluding lease liabilities) of £1.0bn. This places the business in a strong position to manage the financing associated with the Ball Aerospace acquisition which completed in February 2024.
• Our order backlog has reached a record level of £69.8bn, driven by order intake of £37.7bn following a number of significant awards in the year including SSN-AUKUS, Dreadnought and multiple combat vehicles orders in our Hägglunds business. 
• The Board has recommended a final dividend of 18.5p, taking the total dividend for 2023 to 30.0p - an increase of 11.1% on last year. Subject to shareholder approval at the 2024 Annual General Meeting, the dividend will be paid on 3 June 2024 to shareholders on the share register on 19 April 2024.

Capital deployment

• In February 2024, we completed the acquisition of the US-based Ball Aerospace business from Ball Corporation for $5.5bn (£4.4bn). Upon completion, the Group drew down $4.0bn (£3.2bn) under a bridge finance facility, and paid $1.5bn (£1.2bn) in cash from the Group’s existing cash resources in settlement of the transaction.
• During the year, the Company repurchased 59m shares under the 2022 share buyback programme, at a cost of £561m. In total, 142m shares have been repurchased under the 2022 share buyback programme at a cost of £1.2bn, representing 4.4% of the called up share capital (excluding treasury shares) when the programme commenced.
• In August, the directors approved a further buyback programme of up to £1.5bn. The further programme is expected to commence after completion of the current buyback programme and complete within three years of its commencement.
• In February 2024, Air Astana completed an initial public offering (IPO) with a joint listing in London and Kazakhstan. Following the IPO, our shareholding has reduced from 49% to c.16% with proceeds on disposal of c.$0.2bn.

Strategic progress 

During the year, three significant events have positively enhanced the business portfolio relevance for the long term:

• In March 2023, further announcements were made as part of the AUKUS trilateral agreement between Australia, the UK and the US, with funding of £3.95bn secured from the UK Ministry of Defence for the next phase of the UK’s next-generation nuclear-powered attack submarine programme.
• In December 2023, Ministers from Italy, Japan and the UK signed an international treaty to develop an innovative next generation stealth fighter under the Global Combat Air Programme (GCAP) and confirmed that the joint GCAP government headquarters will be based in the UK. Following the industry collaboration agreement announced in September, as the UK’s industry lead, we will continue to work closely with our partners Mitsubishi Heavy Industries in Japan and Leonardo in Italy to determine the future joint business construct, which will also be headquartered in the UK.
• We announced the acquisition of Ball Aerospace, a leading provider of spacecraft, mission payloads, and optical and antenna systems. The business is headquartered in Colorado, with more than 5,200 employees, adding additional capabilities to design, build and operate satellites and satellite systems to our multi-domain portfolio and increase our exposure to high priority areas of the US Department of Defense budget.

Other operational highlights

• We received a contract award from the Czech Republic for 246 CV90 MkIV infantry fighting vehicles.
• The AMPV combat vehicle moved into full rate production following contract awards.
• We secured a ten-year contract to continue operating the US Army Ammunition Plant in Holston, Tennessee.
• F-35 aft fuselage manufacturing continued at full-rate production through 2023, with 162 aft fuselages completed during the year.
• Ten Typhoons were delivered to Qatar Emiri Air Force, with 18 now in service.
• We reached an agreement with the Kingdom of Saudi Arabia for a further five years of Salam Typhoon support.
• MBDA secured significant orders, including Poland’s PILICA+ Air Defence upgrade defence programme.
• We continued work on developing the UK future flying combat air demonstrator to fly within four years.
• We secured £2.4bn of order intake for Dreadnought, with three boats now in construction.
• Construction of new ship assembly hall and Applied Shipbuilding Academy in Glasgow is well underway.
• We secured additional UK munitions orders, worth over £400m, to increase production of vital defence stocks.
• In Cyber & Intelligence, we continued investing in new products for space, multi-domain capabilities and synthetic training. 

“Our 2023 financial results further confirmed our value-compounding model, with strong top line growth, increased profits, strong cash flow generation and earnings progression. Combined with disciplined capital deployment in the form of a growing dividend, continued share repurchases and strategic M&A, this resulted in excellent returns for our shareholders. We also see our model continuing to advance in 2024, with the Ball Aerospace acquisition enhancing our growth and consolidating our presence at scale in the fast growing space and tactical solutions domains.”
Brad Greve, Chief Financial Officer

Group guidance for 2024 ¹ 

The Group guidance for 2024 incorporates the acquisition of Ball Aerospace ² and the reduction in the Group’s shareholding in Air Astana following its initial public offering, both of which completed in February 2024. 

Guidance is provided on the basis of an exchange rate of $1.24:£1, which is in line with the actual 2023 exchange rate. 

• Underlying net finance costs £350m to £375m
• Effective tax rate c.21%
• Non-controlling interests c.£80m

Sensitivity to foreign exchange rates: the Group operates in a number of currencies, the most significant of which is the US dollar. As a guide, a 5 cent movement in the £/$ exchange rate will impact sales by c.£500m, underlying EBIT by c.£70m and underlying earnings per share by c.1.3p.

1. While the Group is subject to geopolitical and other uncertainties, the Group guidance is provided on current expected operational performance. The guidance is based on the measures used to monitor the underlying financial performance of the Group. Reconciliations from these measures to the financial performance measures defined in IFRS are provided in the Alternative performance measures section in the 2023 Full year statement.
2. Guidance incorporates the acquisition of Ball Aerospace from 16 February 2024.
3. In addition to the free cash flow above, the Group received proceeds of c.£0.2bn from the reduction in the Group’s shareholding in Air Astana. The cash flow impact of business acquisitions and disposals is excluded from the Group’s definition of free cash flow.

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